Sterling fell against a broadly stronger dollar on Friday after better-than-expected US non-farm payrolls data strengthened the chances that monetary policy in the US would need to be tightened soon. Further pressure on the pound came from an earlier survey that showed weaker British manufacturing activity growth in March.
The US employment report showed the economy added 216,000 jobs last month, the largest increase since May, offering more optimistic signs that the economic recovery was underway. Sterling hit a session low of $1.5987 against the dollar after the data, not far from a two-month low of $1.5937 hit last month. Traders said a large sell order for the 1500 GMT fixing would add pressure on to the pound.
"We think sterling's going to back down towards the $1.57 zone on stronger data from the US Also we think QE2 is coming to an end and market psychology towards the US seems to be changing," said David Bloom, global head of currency research at HSBC markets. The euro was down around 0.2 percent at 88.16 pence, but stayed close to a five-month high of 88.53 hit on Thursday when higher-than-forecast inflation in the eurozone cemented expectations for a rise in European Central Bank interest rates as early as next week.